Q8 Case Study Birchbox (Competing in beauty product Industry) Birchbox was established in September 2010 by Hayley Barna and Katia Beauchamp. In the late 2009, in the final semester of their MBA program, Barna and Beauchamp were brainstorming possible ideas for a business. In 2010, Katia Beauchamp changed the face of the beauty business. With cofounder Hayley Barna, she launched Birchbox, sending monthly boxes of beauty samples to customers who paid a small fee to try the industry's latest products. More than a million subscribers signed up, and Birchbox expanded into men's products as well as retail, launching multiple pop-up shops and opening stores in New York and Paris. But after six years, the industry changed. The subscription-box model felt more innovative than well-worn. and many Birchbox customers delighted about receiving products that did suit their lifestyle. Over the years, Birchbox had sustainably grown its subscriber base to 1 million but in 2016 it found itself at a critical point where it had to slow down its growth owing to lack of funds even as copycat businesses were shadowing its subscriber base. In 2016, Birchbox's subscriber base had fallen by 7%. Competitors backed with better resources were giving it a tough time. New businesses which had popped up and operated in their own niches had gained a cult following. Birchbox's operations were labor intensive, which was a limiting factor and kept the company from exploring more customization while keeping the same cost structure. Subscribers were finding a mismatch between their preferences and the samples which Birchbox delivered to them. The surprise element which happened to be one of the core offerings of Birchbox was fading. Birchbox's only way to effectively monetize its model was to convert the subscribers to full product buyers on its online portal. But Birchbox's subscription also boosted its competitors' sales as customers were free to make full purchases from any site of their choice. Birchbox had a generous loyalty program in place but its effectiveness came into question because there was a view that the subscribers were keener on earning loyalty points than on the products themselves. Then Birchbox went for lay- offs followed by a round of funding which gives breathing room subscribers to full product buyers on its online portal. But Birchbox's subscription also boosted its competitors' sales as customers were free to make full purchases from any site of their choice. Birchbox had a generous loyalty program in place but its effectiveness came into question because there was a view that the subscribers were keener on earning loyalty points than on the products themselves. Then Birchbox went for lay- offs followed by a round of funding which gives breathing room for the cash-strapped start-up. Meanwhile, competition had caught up and some clones offering the same kind of services as Birchbox had started eclipsing the subscriber base of the company. Beauchamp had to set her priorities to bring growth with profits. Reorders or full product sales would bring in profits but not without rise in subscription base so that new customers try more samples before going for full purchases. Subscription business was tricky, more customization to tap new niches and to excite existing customers was capital intensive. The enormous logistics cost of dispatching the boxes to the millions was prohibitive. Add to it unhappy customers and unforgiving clones; Birchbox had to find a way out. LOOKING FORWARD Still, the company maintained a valuable, growing base and in November 2018 announced its next chapter: opening Birchbox boutiques within select Walgreens stores. Locations will continue to open throughout 2019. Exhibit - 1 Comparison of Birthbox and Competitors Factor Avg Box contains Brands Birchbox SIO Glossbox Ipsy SIO $21 Sephora SIO Mid-range Good for Mid-range Mid-range and Mid-range and drugstore High-End Trying New Experimenting Sampling high end Value and range Skincare and Hair with new make-up products of products products colours Source: Compiled by author Questions Q8a. Examine Birchbox's business model and identify the key challenges pertaining to its model which limit the growth of the company. [4.5) Q8b. What are the scale and non-scale based advantages that affect the market entry? [3]